What is the PV of the receipt of $5,000 per year for 5 years at 10%,...

What is the PV of the receipt of $5,000 per year for 5 years at 10%, then $2,500 per year for 5 years, at 12%?

Expert Solution

	Annuity PV Factor =	P [ 1 - ( 1 + r )^-n ]
		r

I)	PRESENT VALUE OF FIRST 5 YEAR ANNUITY
	Annuity PV Factor =	5000 * ( 1 - ((1 / (1 + 10%)^5)))
		10%

	Annuity PV Factor =	1895.393385
		0.1

	Annuity PV Factor =	18953.93


II)	PRESENT YEAR OF NEXT 5 YEAR ANNUITY = PRESENT VALUE OF 10 YEARS ANNUITY - PRESENT VALUE OF FIRST 5 YEARS ANNUITY FOR $ 2500 PER YEAR
	PRESENT YEAR OF NEXT 5 YEAR ANNUITY = A - B
A)	Annuity PV Factor =	2500 * ( 1 - ((1 / (1 + 12%)^10)))
		12%

	Annuity PV Factor =	1695.066909
		0.12

	Annuity PV Factor =	14125.56


B)	Annuity PV Factor =	2500 * ( 1 - ((1 / (1 + 12%)^5)))
		12%

	Annuity PV Factor =	1081.432861
		0.12

	Annuity PV Factor =	9011.94


	PRESENT YEAR OF NEXT 5 YEAR ANNUITY = A - B
	14125.56 - 9011.94
	5113.62


TOTAL PRESENT VALUE OF ANNUITY =		I + II
		18953.93 + 5113.62
		24067.55

jeff jeffy answered 2 years ago

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